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Tax Reform Error Affects Leasehold Depreciation

Since the U.S. Congress passed historic tax reform late last year, a number of drafting errors and oversights have been discovered in the legislation. Depreciation on qualified leasehold improvements, previously given a permanent 15-year life in 2015, reverted to a 39-year timeline due to an error.

Congress intended to not only maintain the 15-year depreciation schedule but also to grant commercial properties, along with restaurant and retail, a temporary 100 percent bonus depreciation until 2022. At the same time, drafters attempted to simplify four different property types into one catch-all name: qualified improvement property (QIP). Unfortunately, they neglected to specify their depreciable life. Because QIP is depreciated at 39 years under prior legislation, the new tax bill unintentionally reverted leasehold improvements to this timeframe.

BOMA International is working with a coalition of other real estate groups to pass a technical correction to correct this issue.